The good news was the uptick in new orders (up from 11.8 to 15.4) and shipments (up from 5.6 to 13.3) in the December data. Over 35 percent of respondents said that their sales had risen in the month, with 20 percent noting declines in new orders. There were similar numbers for shipments.

Hiring remains a challenge, with manufacturers in the Philly Fed district still hesitant to add new workers, at least for now. The employment index increased from 1.1 to 2.2, suggesting very restrained hiring growth. Indeed, 64.2 percent of those taking the survey said that their employment levels were unchanged in December. On a positive note, the average employee workweek shifted from net declines (-8.6) in November to modest increases in December (6.8). In fact, those saying that the workweek rose in the month more than doubled from 12.2 percent in November to 25.2 percent in December.

Looking ahead six months, manufacturers in the region continue to be mostly upbeat about activity. There was a slight easing in many of the future-oriented measures, but the overriding data were positive. In fact, 55.5 percent of respondents to the survey expecting higher sales, with healthy increases anticipated for shipments, employment, and capital spending. The pace of hiring growth decelerated in this survey, but over one-quarter of manufacturers in the region expect to add workers in the months ahead. Still, more than half are keeping their employment levels flat.

In a series of special questions, respondents were asked about expected cost increases for 2014. The largest increase was seen for health benefits, with an average gain of 7.9 percent. Indeed, nearly 65 percent of survey-takers said that their health insurance costs were rising by 5 percent or more. This was somewhat consistent with the most recent NAM/IndustryWeek survey findings, which reported an average increase of 8.76 percent and more than three-quarters seeing their costs rise by 5 percent or more. Wages and non-health benefits were predicted to grow by 2.3 percent and 1.9 percent, respectively, in the Philly Fed survey.

Chad Moutray is the chief economist, National Association of Manufacturers.

The Federal Reserve Board’s Beige Book, released last week, suggested that the U.S. economy was expanding at a modest to moderate pace nationally. Other data were even more encouraging, including strong numbers for economic growth, manufacturing activity and overall hiring. For instance, the Bureau of Economic Analysis reported that real GDP increased by 3.6 percent during the third quarter, up from its previous estimate of 2.8 percent. This was the fastest pace of growth since the first quarter of 2012. One drawback in the report was that much of the increase stemmed from the restocking of inventories—something that will likely not be replicated in the current quarter. Yet, consumer and business spending also made significant contributions to the economy, with relatively healthy gains for goods exports and improvements in the financial positions of state and local governments.

The stronger domestic and global economy has helped buoy the manufacturing sector, with stronger sales and output seen since the beginning of the third quarter. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) has soared to 57.3, its highest point since April 2011. This was the fourth straight month with the new orders index greater than 60.0, indicating very robust growth in sales. More importantly, export orders also had healthy increases, up from 57.0 to 59.5. With manufactured goods exports up only 1.9 percent year-to-date, the fact that our overseas sales were beginning to pick up was welcome news. Overall, the ISM report—while much more optimistic than other sentiment surveys—mirrors the mostly upbeat outlook within the sector. Yet, sample comments also note downside risks associated with government uncertainty—a lingering issue that has dampened demand on and off over the past few years.

Friday’s jobs numbers were another boost for the U.S. economy. Manufacturers added 27,000 net new workers in November, the most in any month since March 2012. Moreover, it appears that businesses have begun to accelerate their hiring in recent months. The average monthly job gain over the past four months (August to November) was 16,500, a definite sign of progress from the average decline of 8,000 in the five months prior to that (March to July). A similar pattern exists for nonfarm payroll workers, with the average over the past four months jumping to 204,000. The unemployment rate fell to 7.0 percent in November, a rate not seen since November 2008. Yet, despite the strong employment gains, hiring plans remain mostly modest at best over the next year, and manufacturers have accounted for just 3.3 percent of the net new job gains over the past 12 months.

Consumers have seen their spirits lifted recently, particularly as we move further away from the government shutdown. Preliminary data from the University of Michigan and Thomson Reuters indicate that consumer confidence has returned to where it was before the budget impasse, even as lingering anxieties persist. (Sentiment remains lower than it was over the summer.) As their attitudes about the economy have improved, Americans have also opened their wallets, albeit somewhat tepidly. Personal spending rose modestly in October, with higher purchases for both durable and nondurable goods. Perhaps more timely, “Cyber Monday” retail sales set a new record, even as overall spending gains have been mixed for the holidays.

Today, we will release the results of the latest NAM/IndustryWeek Survey of Manufacturers. The report captures the mixed nature of the current economic landscape, which is both hopeful and cautious at the same time. The percentage of respondents who were positive about their own company’s outlook continued to edge higher, up from 76.1 percent in September to 78.1 percent in December. Yet, many subcomponents reflected some easing in activity expected over the next year. For example, respondents now anticipate sales growth of 3.0 percent in the next 12 months, down from 3.3 percent in September’s survey. Nonetheless, the report also found that manufacturing production should accelerate over the next two quarters, with the rising stock market and rebounding housing market helping to drive these estimates higher. The NAM/IndustryWeek survey also includes a number of special questions on the Affordable Care Act and the ongoing budget negotiations.

Other economic reports out this week include the latest numbers for job openings, producer prices, retail sales, small business confidence and wholesale trade.

Chad Moutray is the chief economist, National Association of Manufacturers.

Policymakers’ ability to solve the country’s fiscal problems has once again come into focus with the government shutdown and the looming debt ceiling deadline. Manufacturers are eager for our leaders to solve these short-term differences and move on to address the nation’s long-term challenges. In the most recent NAM/IndustryWeek Survey of Manufacturers, nearly 85 percent of respondents said that they want the President and Congress to come to a long-term budget deal that effectively tackles the deficit and debt. In addition, three-fourths expressed the need to slow the growth of entitlement spending. Once these structural issues are solved, the country can begin to adopt pro-growth measures like those laid out in the NAM’s Growth Agenda that will allow the manufacturing sector and other businesses to expand and flourish. Instead, we are stuck in a budgetary impasse that creates more uncertainty and harbors increased frustrations with the political process.

With the government closed, statistical agencies will not be able to release new data. Last week, that meant that we did not get the latest jobs numbers as well as updates on construction spending and factory orders. There was some consternation about this, including stories in the USA Today and The Hill. Assuming the shutdown lasts through this week, we will not receive new data for international trade, job postings, producer prices, retail sales and wholesale trade. Private sources will only partially fill the vacuum left by the absence of government data. For instance, last week, Automatic Data Processing (ADP) announced its job estimates, with the Institute for Supply Management (ISM) releasing its closely watched Purchasing Managers’ Index (PMI) data. This week, the Federal Reserve will provide consumer credit data, and the Manufacturers Alliance for Productivity and Innovation (MAPI) will release its latest survey.

In terms of the numbers that were out last week, they tended to confirm the trends across the past few weeks. The ISM data show a clear uptick in manufacturing activity during the third quarter, with an average PMI of 55.8 in July, August and September. That is a significant improvement from a sector that essentially stalled during the second quarter, with the sharp acceleration in sales being a major factor. The third-quarter average for the new orders index was a surprisingly strong 60.7, up from 51.0 in the second quarter. Many regional surveys backed up this analysis, with rebounds in the latest reports from ISM-Chicago and the Chicago and Dallas Federal Reserve Banks.

One area that continues to lag behind is hiring. In many sentiment surveys, employment growth has been up only modestly. For the most part, manufacturers were positive about sales and output over the next 6 to 12 months, with some pickup predicted in hiring. The NAM/IndustryWeek survey predicted 1.1 percent growth on average in hiring in the manufacturing sector over the next year; yet, roughly 60 percent of respondents did not plan to change their employment levels at all. With that as context, it was perhaps not surprising that the ADP employment report continued to reflect disappointing jobs growth for manufacturing, up by just 1,000 in September and down by 12,000 year to date. Nonfarm payrolls also grew by a less-than-stellar 166,000 workers, suggesting a persistent hesitance to bring on new workers in the economy extending beyond the manufacturing sector.

Chad Moutray is the chief economist, National Association of Manufacturers.

The larger story is the progress acceleration in activity over the course of the past few months, with relatively strong growth in production and new orders. For instance, the index from production has bounced back from contracting in May (with a sub-50 reading of 48.6) to recording three months in a row of 60-plus readings. The production index increased from 62.4 in August to 62.6 in September. The sample comments tended to echo these sentiments, with many citing increasing demand for their goods.

Along those lines, the pace of new orders remained healthy despite a slight pullback from 63.2 to 60.5. Stronger sales activity should bode well for future output growth. One area of caution was in foreign markets. The exports index eased from 55.5 to 52.0, suggesting a moderation in the growth of sales overseas.

One of the weaker components of the PMI data has been hiring growth, with manufacturers continuing to be hesitant to add new workers. The employment index rose from 53.3 to 55.4, suggesting a pickup in hiring for the sector. This would be good news if true, particularly with manufacturers adding just 20,000 additional workers over the past year and several other reports, including the NAM/IndustryWeek Survey of Manufacturers, indicating only modest growth at best in terms of hiring.

Two other data points of note included inventories and prices. Stockpiles in general have been depleted over much of the past year or so, with negative inventories in five of the nine months so far in 2013. In September, inventory levels were unchanged, up from contractions in July and August. Meanwhile, pricing pressures have picked up a bit (up from 54.0 to 56.5), and yet, inflation remains mostly modest.

Overall, manufacturers wrapped up a pretty decent third quarter in terms of output and sales. That is definitely the case when compared to the softness experienced in the second quarter, when activity was essentially stalled. The average PMI reading for the last three months was 55.8, and more importantly, the average new orders reading was 60.7, indicating relatively strong growth in sales. As such, this data tends to mirror other reports that show an acceleration of activity of late for the sector.

Such data tend to support the notion of cautious optimism ahead, and yet, uncertainties in the marketplace could put a monkey wrench in such positivity. Fiscal uncertainty is likely to limit economic growth – at least in the short-term – and we continue to see growth rates for manufacturing that, while better than in the spring, are still not as robust as we might like. With that in mind, this manufacturing report suggests movement in the right direction, but policymakers would be wise to move beyond the short-term budget battles and begin debating ways to grow our economy for the long-term.

Chad Moutray is the chief economist, National Association of Manufacturers.

Manufacturers were slightly more upbeat in the September National Association of Manufacturers (NAM)/IndustryWeek (NAM/IW) survey. Over the course of the next 12 months, respondents expect their sales to grow 3.3 percent on average, up from 2.7 percent in June. Capital spending, exports, and employment expectations also edged higher. However, hiring still lags behind, with roughly 60 percent of businesses not planning to add to their workforce. Overall, 76.1 percent of those taking the survey were either somewhat or very positive about their own company’s outlook. This increased from 72.3 percent three months ago but still fell well below the 88.7 percent experienced in March 2012.

In a series of special questions, manufacturers made clear that they continue to worry about the long-term health of the nation. Nearly 85 percent want policymakers to permanently address our deficit and debt challenges over the next 12 to 18 months. They also want the President and Congress to slow the growth of entitlements (74.5 percent) and pass comprehensive tax reform (66.2 percent). At the same time, respondents cited the rising cost of health care as their top primary business challenge right now. With continuing uncertainties related to implementation of the Affordable Care Act, health care has been the top concern for three straight quarters.

This week, the Federal Open Market Committee meets, and everyone will be watching to see what the Federal Reserve does about its asset purchases. The Fed currently has more than $3.6 trillion in assets on its balance sheet and is buying $85 billion in long-term and mortgage-backed securities each month. Some expect the Fed to “taper” its purchase amounts at its meeting this week, with all asset purchases ending by mid-2014. The NAM/IW survey respondents expressed a moderate degree of concern about the Fed’s exit strategy from its holdings, rating it a 6.0 on average on a scale from 1 to 10 (where 1 is not worried and 10 is extremely worried). Regardless, in the short term, the markets have already priced in some sort of taper this fall, with the yield on 10-year Treasury bills up from 1.66 percent on May 1 to 2.89 percent on Friday.

Other economic data released last week suggested a bit of softness in August. Sentiment was somewhat lower for both small businesses and consumers, and retail sales rose just 0.2 percent. While auto sales rebounded in August from weaknesses in July, the broader retail picture was more mixed. Higher gasoline prices and borrowing costs, combined with increased geopolitical risks, have perhaps had some impacts. On a positive note, manufacturers posted more jobs in July, but the figures still remained subpar, and net hiring for the month was zero.

In addition to the Fed’s monetary policy decision, another big highlight will come this morning with the latest news on manufacturing production. Industrial production is expected to have increased modestly in August on the recent pickup in activity. Still, manufacturing output has been weak over the past 12 months, up just 1.3 percent year over year. We will also get regional data from the New York and Philadelphia Federal Reserve Banks. The other headline will come on Wednesday, with higher mortgage rates more than likely slowing the growth of housing starts. In addition, new data on consumer prices, leading economic indicators, and state employment are forthcoming.

Chad Moutray is the chief economist, National Association of Manufacturers.

For the most part, the results of this survey mirror other economic data released recently, which note progress in activity in the summer relative to some weaknesses in the spring months.

Respondents said that they expect sales to rise 3.3 percent on average over the next 12 months, up from 2.7 percent last time, suggesting modest growth moving forward. Larger manufacturers were more positive than small and medium-sized firms about future growth in orders. Still, even with the increase, sales growth remains below the 4.7 percent average observed in the March 2012 survey.

Other measures of activity were also slightly higher for the quarter. Those taking the survey anticipate export sales to rise 1.4 percent (up from 1.2 percent), capital investment spending to grow 2.1 percent (up from 1.2 percent), and full-time employment to increase 1.1 percent (up from 0.6 percent). Hiring intentions overall remain sluggish, with just over 30 percent planning to add workers in the next year and roughly 60 percent expecting no changes in employment. Wages and salaries are predicted to increase 1.7 percent on average in the next 12 months, up from 1.6 percent last time.

Manufacturers continue to be concerned about rising health insurance costs. About three-quarters of respondents cited health costs as their primary business challenge, topping the list of current concerns for the third straight quarter. With continuing uncertainties related to implementation of the Affordable Care Act, many were still unaware of their premium costs for next year, and as was noted in the previous write-up, there continues to be a perception that these costs will rise significantly.

Business leaders are also anxious about the long-term health of the nation, and once again, they seek a long-term solution to the country’s fiscal woes. Nearly 85 percent of manufacturers completing the survey said that policymakers need to find a long-term solution to our deficit and debt challenges. As part of this, slowing the growth of entitlements (74.5 percent) and passing comprehensive tax reform (66.2 percent) were also listed as polices that the President and Congress should seek in the next 12 to 18 months.

When we speak with manufacturers, an increasing number of them note worries about monetary policies, as well. The Federal Reserve currently has over $3.6 trillion in assets, and it is purchasing $85 billion each month in long-term and mortgage-backed securities. (It is expected to slow, or “taper” those purchases perhaps as soon as the next Federal Open Market Committee Meeting on September 17-18.)

Perhaps surprisingly – especially given the anecdotal comments of many of our members on the topic – only one-third of those answering the survey ranked ending expansionary monetary policies as a top policy priority. Moreover, on a scale of 1 to 10 (where 1 is not worried at all and 10 is extremely worried), our members averaged a 6 when asked about how worried they were about the Fed’s exit strategy. This suggests at least a moderate degree of concern, with 57.2 rating it between 5 and 8, but perhaps not as high as some might have thought. Read the NAM’s press release on the survey here.

Chad Moutray is the chief economist, National Association of Manufacturers.

Manufacturing activity in the United States has accelerated in the past few months, with several indicators reflecting a pickup in sales, output and shipments. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) increased from 55.4 in July to 55.7 in August, with strong growth in new orders and production. This was the third consecutive month of expanding activity—a sign that the sector has begun to rebound from softness during the spring. Still, hiring growth remained more modest, and several sample comments tended to echo a cautious tone in contrast to the more optimistic data. This morning, we will release the results of the NAM/IndustryWeek Survey of Manufacturers, which support many of these findings. Our members have a slightly improved business outlook, but we are still not seeing the robust growth that we had at the beginning of 2012. We will discuss more of the survey’s highlights in next week’s report.

August’s jobs numbers continued to be disappointing, even though manufacturers added 14,000 additional workers on net. Revisions cut the number of manufacturing jobs in June and July by 14,000, negating August’s gains. The good news was that August’s gains followed five straight months of declining employment. Nonetheless, the sector has added just 20,000 net new workers over the past 12 months, or less than 1 percent of all nonfarm payroll workers created over the past year. We hope the increases in manufacturing production will yield additional hiring moving forward—something that might require stronger economic growth both domestically and globally.

On the export front, the trade deficit widened from $34.54 billion in June to $39.15 billion in July, mainly due to higher goods imports. Despite the increased deficit, July’s figure was in line with the 2013 average of $39.94 billion. Manufactured goods exports have grown frustratingly slow so far this year, up just 1.6 percent through the first seven months. Europe’s challenges are a major factor in this easing. Europe’s economy appears to be stabilizing, with the Markit Eurozone Manufacturing PMI expanding for the second consecutive month (following 23 straight months of contraction). We have seen modest gains in exports with our major trading partners otherwise, but these gains have still not been as large as past years.

The next Global Manufacturing Economic Update, which will be released on Friday, will delve deeper into international trends. Also this week, we will get the latest data on consumer and small business confidence, job openings, producer prices, retail sales and wholesale trade.

Chad Moutray is the chief economist, National Association of Manufacturers.

In the first five months of 2013, manufacturing production has been virtually unchanged, according to the Federal Reserve Board, and capacity utilization in the sector edged lower from 76.4 percent in December to 75.8 percent in May. Production among manufacturers increased 0.1 percent in May, or up 1.7 percent year-over-year. The latest NAM/IndustryWeek Survey of Manufacturers predicted that the annual pace of production activity should increase to 2.8 percent by the fourth quarter of 2013. Manufacturing production will need to pick up for that to be true. Manufacturing export numbers have been soft, with higher taxes and across-the-board spending cuts dampening demand.

Regarding the NAM/IndustryWeek survey, manufacturers anticipate sales to increase 2.7 percent on average over the course of the next year. While this is higher than the 2.3 percent growth rate observed three months ago, it is below the 4.3 percent pace of 12 months ago. Larger businesses were more optimistic about sales and their company’s outlook than their small and medium-sized counterparts, with all respondents predicting sluggish hiring growth over the next year. The top concern, cited by 82.2 percent of respondents, was the rising cost of health insurance. The average health insurance premium increase in 2013 was 8.6 percent, with a 13.9 percent jump on average anticipated for 2014. The 2014 numbers suggest just how much uncertainty there is regarding insurance rates, with the perception they will go up significantly. I spoke about this survey and the general state of manufacturing on CNBC’s “Squawk Box” last Tuesday. (continue reading…)

A series of special questions on the Affordable Care Acts drilled further on this topic. Specifically, 99.0 percent of manufacturers surveyed said that they provide health insurance coverage to their workforce, with 38.0 percent of those self-insuring. The average health insurance premium increased 8.6 percent this year, with a whopping 13.9 percent predicted for next year. More than anything, the 2014 numbers suggest just how much uncertainty is out there regarding insurance rates, with the perception out there that they will go up significantly. Just 43.8 percent of manufacturers said that they were prepared to implement the ACA when it goes into effect starting later this year.

Looking at the current economic outlook, 72.3 percent of manufacturers said that they are either somewhat or very positive about their company’s outlook, up from 51.8 percent six months ago and 70.1 percent three months ago. With the exception of the December survey, optimism levels have been roughly 70 percent since September. In essence, this survey confirms the good-but-not-great nature of the current manufacturing economy, much as we have seen in the most recent Institute for Supply Management and employment numbers. Sales are expected to rise 2.7 percent over the course of the next 12 months. While this was higher than the 2.3 percent observed last time, it was still lower than the 4.3 percent observed one year ago. (continue reading…)

Some of the indicators released last week helped confirm the belief that the U.S. economy has started 2013 on a stronger-than-expected note. First, industrial production rose 0.8 percent in February, led by strong demand for automobiles and other goods. This was a decent turnaround from much weaker numbers in January, with all but three major manufacturing sectors experiencing higher production. Second, retail sales rose a surprisingly healthy 1.1 percent in February. While much of that growth stemmed from higher gasoline prices and higher motor vehicle sales, the data suggested modest growth overall, with Americans continuing to make modest gains in purchases despite headwinds from higher taxes and fiscal uncertainties.

At the same time, those headwinds appear to be having some negative impacts. Industrial production was increasing at a 5.1 percent year-over-year pace at this point last year; today, that rate is 2 percent. That example can be replicated in so many of the recent indicators. For instance, the NAM/IndustryWeek Survey of Manufacturers reported an uptick in optimism in the latest survey, with sales expected to grow 2.3 percent over the next year. That represents an improvement from three months ago (when the rate was 1.0 percent), and the percentage of respondents who were positive about their own company’s outlook rose from about 52 percent in December to roughly 70 percent today. But this is a come-down from the stronger pace of nearly 5 percent growth in annual sales expected in March of last year (when approximately 89 percent were positive in their outlook). Clearly, more work still needs to be done to get the economy moving. (continue reading…)